With a lobbyist at his side, Wayne Calabrese sat down to a friendly dinner here with two Mississippi state senators in late March. The restaurant's player piano plinked nearby while Mr. Calabrese, president and chief operating officer of Wackenhut Corrections Corp., described his company's extraordinary problem.

Two hundred miles north, at a Wackenhut-run prison in Holly Springs, Miss.,
130 steel bunks stood bare and unused in two cavernous cell blocks.
Wackenhut had closed the units because it no longer had inmates to fill
them. Every day, the empty space was costing the company money it had
expected to be paid by the state. Mr. Calabrese recalls telling the
senators Wackenhut couldn't afford so many empty beds, and he hoped they
could help.

Even after Mississippi built 15 prisons in seven years, nobody thought the
day would come when there weren't enough felons to fill every cell. But
that day came this year, when the state found itself with 2,000 more prison
beds than prisoners.

The companies and counties that provide those beds responded with a bold
request: Pay us for cells Mississippi doesn't need. So persuasive were
prison operators that state lawmakers at one point wrote legislation that,
according to corrections commissioner Robert Johnson, set aside millions of
dollars for empty prison beds -- or "ghost inmates."

The prisons won this favor even as lawmakers were cutting state budgets for
classroom supplies, community colleges, mental-health services and other
programs. "We've got this all wrong," Mississippi Attorney General Mike
Moore says. "We're the poorest state in the union, and we're investing
money in failures."

After two decades of stuffing ever more prisons with ever more prisoners,
many states are looking to reverse that grim trend. What unfolded in
Mississippi after Mr. Calabrese's evening with the senators shows how hard
that could be.

Prison expansion here -- as in many states -- spawned a new set of vested
interests with stakes in keeping prisons full and in building more. In
Mississippi, those interests include private prison companies and their
lobbyists, legislators with prisons in their districts, counties that
operate their own prisons and sheriffs who covet convicts for local jails.
The result has been a financial and political bazaar, with convicts in
stripes as the prize.

The number of people behind bars in the U.S. has nearly quadrupled in the
past 20 years -- to about two million -- and prison overcrowding persists
in many states. But as crime has declined, some states are easing the tough
sentencing laws that fueled the inmate bulge. The nation's prison
population appears to be leveling off, and in some places, pockets of
prison space are opening up.

More than 1,000 beds are empty in South Carolina, even after the state
recently closed a prison to save money. Michigan has postponed opening a
new prison for a year because the state lacks the inmates to fill it.
Minnesota has more than 600 empty beds at a new prison and 130 elsewhere in
its system.

Empty cells could proliferate. Last year, the nation's prison population
grew by just 1.3%, its slowest pace since 1972, and state-prison
populations dropped in 13 states. During the second half of 2000, the
nationwide state-prison population shrank by 0.5%, its first such decline
in nearly three decades.

Mississippi ranks behind only Texas and Louisiana in per-capita
incarceration. But the growth of Mississippi's inmate population has slowed
while its prison system has expanded. This has put Mr. Johnson, the blunt
53-year-old former police chief who runs the state corrections department,
in a peculiar spot. "Everybody wants inmates," he says. "I can't help them."

Empty prison cells used to be scarcer in Mississippi than cool summer
afternoons. In 1994, a federal judge threatened the state with big fines
because too many state convicts were crowding local jails. Crime-conscious
lawmakers rallied to then-Gov. Kirk Fordice, who vowed in his State of the
State address that year to put yet more criminals behind bars. "If that
means we have to build a bigger jailhouse," Mr. Fordice said, "hand me a
shovel, stand back and we'll get a bigger jailhouse built."

Fifteen new prisons later, Mississippi has four main types of institutions
competing for state inmates. Private companies -- Wackenhut Corrections
Corp. of Palm Beach Gardens, Fla., CCA of Nashville, Tenn., and Tuscolameta
Inc. of Walnut Grove, Miss. -- run a total of five facilities designed to
house 4,000 prisoners in exchange for payments from the state. Cash-poor
counties eager for economic development operate 10 "regional" prisons where
the state can rent as many as 2,500 additional beds. Some local sheriffs
get paid to keep state inmates in their jails. And the state runs three of
its own penitentiaries.

All told, Mississippi has bunks for about 20,700 inmates. Until last year,
it was easy to keep them filled because the state in 1995 had enacted a
"truth-in-sentencing" law that, like similar statutes in many other states,
required all felons to serve 85% of their sentences.

Then, in June 2000, several related events expanded the supply of cells
available for state inmates. First, another federal judge fined the state
$1.8 million, again for packing local jails with too many state prisoners.
That prompted Mr. Johnson, who had been on the job just two months, to
pressure substandard jails to improve conditions, so they could legally
house another 700 state inmates.

He also tinkered with prison policies to allow some well-behaved inmates to
get out slightly earlier, within the bounds of the truth-in-sentencing law.
The rate of inmates being released started rising just as counties opened
three new regional prisons that created 750 additional spots for state
inmates. By the end of last year, more than 2,000 medium-security beds
stood empty.

This wasn't welcome news at the private and regional prisons, which depend
on inmates for revenue. Since 1996, when Wackenhut opened a 1,000-bed
prison in Holly Springs and CCA launched a similarly sized facility in
Greenwood, the companies had enjoyed a constant supply of more than 990
inmates each. The state, which owns the prison buildings, paid about $28 a
day per prisoner to the private operators. As the year ended, the head
counts in each facility had slipped to about 900 and were still falling.

Prisons Are Like Airlines

Prisons that charge fees crave prisoners like airlines crave passengers.
Just as an airline's costs for fuel and crew stay nearly the same no matter
how full a flight, prisons carry security, staff, utility and other fixed
costs that can't easily be reduced in step with a declining inmate count.
So those two moth-balled 65-man units at Wackenhut's Holly Springs prison
represented about $109,000 a month in lost revenue. The move cut into
profit because Wackenhut didn't reduce payroll, its biggest expense there.

Likewise, each regional prison had been accustomed to having nearly all of
its 250 beds filled, at daily rates of $25 to $27 per inmate. By January,
the inmate counts at these facilities were hovering near 200 each. While
the regionals aren't supposed to turn a profit, the counties that own and
operate them rely on the revenue to pay off debt from building the prisons
and to pay staff salaries.

Most regionals were built in rural areas that needed an economic boost.
Bolivar County's facility, in the Mississippi River delta in the northwest
part of the state, employs about 40 local people. On a recent tour of the
prison, a group of cinder-block buildings surrounded by razor wire and
soybean fields, state Rep. Linda Coleman pointed to a guard and said, "If
we don't get [more inmates], she might get laid off."

In January, Ms. Coleman, the Democratic vice-chairwoman of the House
penitentiary committee, lobbied Mr. Johnson on behalf of the Bolivar
prison. She says she told him the prison needed more inmates so the county
wouldn't default on $7.8 million in debt it took on to build the facility.

Sorry, he recalls telling her. In the past, the state had steered most
fresh convicts to the private and regional prisons, making sure they were
close to full. But Mr. Johnson says he cared more about saving money than
keeping the for-pay prisons happy. Now, as space opened up in the three
state-run facilities, he was directing new inmates to those prisons.

The state had agreed by contract to provide each regional facility with at
least 200 inmates, which it was doing. Beyond that, he remembers telling
Rep. Coleman, "I can't create any inmates."

He says he was merely following the legislature's desire to corral
corrections spending, which has more than doubled since 1994, to nearly
$260 million a year. In contrast to the $25 to $28 daily per-prisoner fee
the state paid to keep inmates in private or regional facilities, he says
the cost of adding a prisoner -- the marginal cost -- to one of the three
state-run penitentiaries is only about $8 a day. "It's like owning a
hotel," Mr. Johnson says. "Why would you put somebody up in another hotel
when you have an empty bed in your own?"

The numbers are actually a bit more complicated. The average -- as opposed
to marginal -- cost of housing a prisoner in a state-run facility comes to
about $50 a day, but much of that reflects fixed costs, such as staff and
building maintenance. The state average is also higher in part because it
includes amounts not reflected in the private and regional per-diems. These
amounts include expenses for parole supervision and the higher cost of
handling Mississippi's maximum-security inmates, most of whom are directly
housed by the state.

Throughout January and February, legislators, wardens and county
supervisors deluged the corrections department with pleas for prisoners.
Mr. Johnson had no qualms about putting criminals behind bars. He had done
it for most of his career as a cop. But it disturbed him to hear burglars,
drug dealers and car thieves being portrayed as valuable assets.

"The sole focus for many people is economic development: 'We can make money
off of inmates,' " he says. "That's just gotten a little too skewed for my
liking."

One frequent caller to the corrections department was Charles Weissinger
Jr., a lawyer, lobbyist and former state legislator who had helped plan the
first two regional prisons in the 1990s. He now has contracts with six
regional prisons to provide legal and other advice. A report released in
July by the state legislature's auditing agency says these clients will pay
him at least $332,000 this year.

As spring neared, Mr. Weissinger implored Mr. Johnson and his aides to
restore the regional prisons to their full, 250-inmate capacity. The
lobbyist recalls saying that if extra prisoners had to come out of the
private prisons, so be it, because the regionals are "the littlest and the
poorest." Mr. Johnson didn't budge.

Wackenhut's local lobbyist, Al Sage, made his own appeals. The folksy,
silver-haired Mr. Sage, 53, is known for his dogged style. "If the capitol
doors are open, I'm over there," he says. Sage Advice, his one-man firm in
Jackson, had been hired by Wackenhut in 1994, when the prison-building push
began. The prison company was his best client in 2000, accounting for
$30,000 of his $124,100 in total revenue.

Begging for inmates had become a big part of Mr. Sage's job. By mid-March,
the inmate count at the Wackenhut-run Holly Springs prison had fallen below
800. Mr. Calabrese, the company's president, recalls telling Mr. Sage the
prison needed at least 900 inmates to cover costs and generate a
"reasonable" profit, which the company declines to specify. The lobbyist
repeated the 900 minimum to any lawmaker who would listen.

Wackenhut's Lobbying

On March 22, Mr. Calabrese paid a visit to Mr. Johnson for a conversation
both men describe the same way. They sat in the commissioner's conference
room, facing a color-coded map of Mississippi prisons. Mr. Calabrese asked
if he could expect more inmates anytime soon. The answer was no.

Wackenhut's state contract at Holly Springs was up for renewal. Mr.
Calabrese said he couldn't renew if it meant Wackenhut would keep losing
money. Mr. Johnson said he didn't have the budget to pay for the company to
house more inmates, and only the legislature could change that. Mr.
Calabrese perked up. What was the legislature's view? he asked. "They're
meeting now," Mr. Johnson said, and the executive could go to the
statehouse and find out.

"I better get over there," Mr. Calabrese said. He hadn't planned to stay in
Mississippi overnight, so he bought a fresh shirt for the next morning.

Two blocks away at the statehouse, the part-time legislature was completing
its three-month session. State tax revenues had come in short of
projections because of the faltering economy, and Gov. Ronnie Musgrove was
battling lawmakers for more money for the state's public schools. The
legislature had made a one-year reduction of $30 million for classroom
supplies and textbooks and ended a program that funneled 25% of any state
budget surplus to the public schools.

Messrs. Calabrese and Sage went door-to-door in the statehouse, a domed
granite edifice that stands on the former site of Mississippi's first
prison. In a corridor, they buttonholed Carl "Jack" Gordon, Democratic
chairman of the Senate appropriations committee and one of Mississippi's
most powerful legislators. They also chatted with Republican Sen. Robert
"Bunky" Huggins, another political heavyweight whose district is home to a
regional prison and CCA's Greenwood facility.

In Sen. Huggins's office, Mr. Calabrese emphasized that Wackenhut was not
an interloper. "We didn't build a prison on spec and start looking for
prisoners," he recalls saying. "You invited us."

He continued the discussion over dinner with Sens. Huggins and Gordon at
the Parker House, a local restaurant. Mr. Calabrese, 50, made his case with
the crispness and deference of the former courtroom attorney that he is. He
told the senators it was "fair" and "commercially reasonable" that
Wackenhut be restored to 90% capacity at Holly Springs -- 900 inmates --
because overall the state's prisons were 90% full. "We're willing to share
the pain," he recalls saying, "but give us 90%." And he picked up the check
for dinner.

Unlike the regional prisons, Wackenhut and CCA had no inmate guarantees in
their contracts. The contracts obliged Mississippi only to make its "best
efforts" to keep the facilities filled. Weeks before, CCA's local lobbyist,
Spencer "Buddy" Medlin, told Sen. Huggins that CCA's prison in his district
needed 930 inmates to break even, the senator recalls.

Sens. Huggins and Gordon worried that the companies might pull out of the
prisons, and neither man thought the state could run them more efficiently
than the companies. In the future, Mississippi might need the extra beds.

By March 24, a Saturday, Mr. Calabrese had left, but Mr. Sage was planted
on the second floor of the statehouse. A conference committee of three
representatives and three senators had convened to set the corrections
budget and deal with the empty beds, which now numbered 2,600. Four of the
six lawmakers had prisons in their districts.

The conferees sat around a U-shaped group of tables in a high-ceilinged
room hung with portraits of former appropriations chairmen, participants
say. Cigar and cigarette smoke floated in the air. Mr. Johnson shuttled in
and out to answer questions, while Mr. Weissinger, the regional prisons'
attorney, waited with Mr. Sage outside.

The conferees spent most of the weekend debating whether to solve the
empty-bed problem by closing part of the state's massive century-old
penitentiary at Parchman in northwest Mississippi. Rep. Coleman of Bolivar
argued against the idea. Some of her constituents work at Parchman, which
is near her district. She opposes companies being in the incarceration
business in the first place, dealing with "human bodies as commodities," as
she puts it.

Sen. Huggins endorsed closing part of Parchman. "Jack [Gordon] and I went
out to dinner with the private prisons, and they're hurting," he recalls
telling the lawmakers. Wackenhut and CCA had bailed the state out of a
tough spot in 1994 by helping get two new prisons up and running quickly,
and they deserved help, he said.

"I haven't had the privilege of going to dinner," Rep. Coleman remembers
firing back, "but I don't think we should close the [Parchman] units." The
debate got loud at times, but finally, the conferees agreed to leave
Parchman intact for now.

They turned to the county-owned regional prisons. The legislators were
inclined to boost these prisons' guaranteed minimum to 230 inmates -- an
idea Mr. Johnson says he didn't like, because it meant moving $8-a-day
prisoners from state facilities to $25-a-day regional prisons. The
conferees accused him of wanting to keep state prisons full, so their
budget would look justified, participants recall. Guilty, he said.

The committee emerged with a bill around noon on Monday, March 26, but its
language was ambiguous. The measure seemed to set a 230-inmate minimum for
the regional prisons, as well as what looked like a 900-inmate minimum for
the Wackenhut and CCA prisons. The bill didn't, however, explicitly require
Mr. Johnson to move any inmates. Rather, it directed his department merely
to "make payments for housing" prisoners according to the stipulated
minimums -- to pay the prisons whether they housed more inmates or not.

Mr. Johnson was outraged. By his arithmetic, his department would have to
pay the private operators and the regionals for the equivalent of 600
inmates they weren't currently holding. The annual bill would come to about
$6 million.

Later that afternoon, he huddled with aides before facing local reporters.
"How do we get them to understand we'd be paying for something we don't
have?" he recalls asking his staff. His communications director, Jennifer
Griffin, suggested asking a friendly lawmaker to address reporters, using a
phrase that had just popped into her head: "ghost inmates." Mr. Johnson
thought for a moment. "No," he said, "I'll do that myself."

The full House and Senate approved the prison bill that afternoon. But Mr.
Johnson stole the show. Newspaper headlines and newscasts endlessly
repeated the line about ghost inmates.

On the defensive now, the legislative conferees told other lawmakers that
they had intended for Mr. Johnson to move inmates to the private and
regional prisons, not pay for ghosts. The actual language hadn't stirred
any significant opposition in the end, the conferees said.

Sen. Huggins says he inserted the private-prison minimum into the bill,
with Sen. Gordon's approval. "We don't guarantee them a profit, but I think
we're obligated to get them enough prisoners to where they have a chance,"
Sen. Huggins now says. Both he and Sen. Gordon say they never intended to
allocate money for empty beds.

Rep. Coleman says she didn't like guaranteeing inmates to the private
prisons but had been too tired to fight anymore. The outcome was a
compromise, she says.

Both Wackenhut and CCA say they never asked for and didn't want to be paid
for empty beds. But Mr. Sage, the Wackenhut lobbyist, says that is exactly
what he interpreted the bill as requiring.

Two days after the legislation passed, Gov. Musgrove vetoed it. In a press
conference, the usually cool-headed governor trembled with anger as he,
too, railed against ghost inmates. He accused lawmakers of helping prisons
while "taking money away from children and teachers."

Just after the governor spoke, Attorney General Moore took the podium.
Flanked by Sens. Huggins and Gordon, Mr. Moore said the only sensible and
proper way to interpret the legislative guarantees was to require the
corrections department to move inmates. There would be no payments for
ghosts. Thus assured, the House and Senate overrode the governor's
prison-bill veto.

Not Over Yet

The prison free-for-all wasn't over yet, however. On June 4, Mr. Johnson
sent a letter to 61 sheriffs around the state. To comply with the prison
bill, he wrote, the corrections department might need to transfer hundreds
of state inmates currently housed by local jails to regional and private
facilities.

Many sheriffs were furious. The state paid local jails $20 a day to keep an
inmate. Sheriffs used the state prisoners, many of whom were low security
risks, to do jailhouse chores, local road maintenance and construction.
Sheriffs, who are influential political figures in Mississippi counties,
angrily complained to the corrections department and attorney general's
office.

Just as the controversy reached another boiling point, the legislature's
audit agency released a study finding that the regional prisons, to break
even, need fewer inmates than had been provided for in the notorious prison
bill. Similarly, the private operators required fewer inmates to cover
their costs, the study concluded.

Sens. Gordon and Huggins said they had always intended to defer to the
audit agency's analysis. The numbers in the prison bill weren't binding,
they added. Mr. Johnson would have to move only a total of 250 inmates, and
the sheriffs could keep most of the state prisoners residing in their jails.

In its report, the audit agency cited a total of nearly $700,000 in
"excessive costs" at the regional prisons, including $272,000 of the
$332,000 in payments to Mr. Weissinger. He says he is paid reasonably and
that his fees cover his work and that of another part-time lawyer, three
legal assistants and a receptionist, as well as related overhead.

During the last week of June, white corrections department buses gathered
inmates from two state prisons and headed north, toward the privately
operated facilities. The buses deposited 154 inmates at the Wackenhut-run
Holly Springs facility, boosting its total population to 869, and dropped
another 83 at the CCA-operated prison in Greenwood, raising its tally to
843. A smattering of additional inmates went to regional prisons.

Wackenhut recently signed a two-year contract renewal for Holly Springs,
with a guarantee for only the first year of at least 871 inmates. Mr.
Calabrese says the company will get by with that amount for now but is
likely to appeal to Mr. Johnson and legislators next year for more inmates.
Steven Owen, a spokesman for CCA, says his company is focused on providing
good service to Mississippi, and "the rest of it will take care of itself."

As of yesterday, 2,145 prison beds remained empty across the state, a
number Mr. Johnson says isn't likely to fall anytime soon. Net admissions
of 554 inmates through Aug. 31 are trailing last year's comparable figure
by 694 inmates. In March, the legislature adjusted the state's sentencing
law to make first-time nonviolent convicts eligible for parole.

And in an aftershock of the 1990s prison-building explosion, an 11th
county-operated regional prison is scheduled to open next spring, with
space for 250 state prisoners. According to a contract he signed before so
many beds became empty, Mr. Johnson must find 200 inmates for that prison too.

Mississippi built 15 prisons in seven years, creating too many cells and
fierce competition for inmates among prison operators. In the hunt for more
convicts were private prison companies Wackenhut Corrections Corp. and
Corrections Corp. of America, as well as "regional" prisons, such as the
one in Bolivar County.

The explosion of prison construction during the past decade has left 27
states with at least 1% excess capacity in their prison systems according
to the Justice Department. Some states, though, are still overcrowded.
Figures are as of end of 2000.

The introduction of tougher sentencing laws in the 1980s and 1990s drove
the national prison population up, even as the rate of violent and property
crime was falling.

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